This paper introduced financial factor into corporate investment model according to current corporate financial theory, studied the relation between investment and cash flow of companies with different size, and further tested the inherent motivation behind investment behavioral differences. Empirical study has shown that investment is more sensitive to cash flow in companies of larger size than of smaller size. The result of inherent motivation shown investment depending on cash flow in companies of larger size is caused by information asymmetric theory, while firm of smaller size is caused by free cash flow agency cost theory. The conclusion offers referential framework perfecting China's capital market and making rational policies.
Industrial Engineering and Management
size of company
investment-cash flow sensitivity
information asymmetric theory
free cash flow agency cost